Although a Chapter 13 bankruptcy debtor generally receives a discharge only after completing all payments required by the court-approved (confirmed) repayment plan, there are some limited circumstances under which the debtor may request the court to grant a hardship discharge even though the debtor has failed to complete plan payments. Such a discharge is available only to a debtor whose failure to complete plan payments is due to circumstances beyond the debtor's control.

The scope of a Chapter 13 bankruptcy hardship discharge is similar to that in a Chapter 7 bankruptcy case with regard to the types of debts that are excepted from the discharge. A hardship discharge is also available in Chapter 12 bankruptcy if the failure to complete plan payments is due to circumstances for which the debtor should not justly be held accountable.

In Alabama, as in other states, Chapter 13 bankruptcy allows debtors to keep their property and pay debts over time, usually three to five years. However, if a debtor encounters unforeseen circumstances that make it impossible to continue with the repayment plan, they may apply for a hardship discharge. The conditions for a hardship discharge require that the debtor's inability to complete payments is due to circumstances beyond their control, the debtor has already paid at least as much as creditors would have received in a Chapter 7 liquidation case, and modification of the plan is not feasible. Debts that cannot be discharged in Chapter 7 will also not be discharged in a Chapter 13 hardship discharge. This includes certain taxes, student loans, alimony, child support, and debts arising from wrongful conduct. The hardship discharge is more limited than a full Chapter 13 discharge and does not apply to debts that are non-dischargeable under Chapter 7. The same principles apply to Chapter 12 bankruptcy, which is designed for family farmers and fishermen.